Jim Dupree, the IRS spokesman for Maryland and Metropolitan Washington, joined Michelle Singletary to help answer readers' basic tax questions.
Each week in Michelle's Personal Finance e-letter, Dupree is answering more tax questions. Check out a compilation of their tips here.
The transcript of the discussion is below:
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Michelle Singletary: Good morning. Can you believe it's that time of year again? Are you ready to file our tax return? Getting headaches already? Well don't worry, you've still got plenty of time. So let's get started.
Check out Michelle's most recent column about tax filing: "Tax Refund Loans Show Price of Impatience" (Jan. 23). And Albert Crenshaw wrote this helpful column last month: "Tax Changes That Merit Remembering This Spring" (Jan. 9).
2005 will mark my second wedding Anniversary. After my first year of marriage, I filed my taxes, married, but separately. I got hit with a whopping tax due amount! What can I/we do this time around to even things out? Or better yet avoid so much in owed taxes?
Jim Dupree: Congratulations! As a married person, you have the option to file your tax return "Married Filing Separately" or "Married Filing Jointly," whichever gives you the greater tax benefit. Explore that option this year, and revisit last year's return too. You can file an amended tax return, Form 1040X if you need to.
I purchased a condo in July 2004. Other than the mortgage interest, is there anything else I can write off?
Jim Dupree: Nope. Only interest and real estate taxes are deductible...
Is there a deadline for when employers must send W-2s out? I am still waiting on one from a part-time job and wonder when I should start hounding them.
Jim Dupree: W-2s should have been mailed out to you by January 31st. If you haven't received yours by February 15, you can check with your employer to get a replacement or call the IRS at 1-800-829-1040, and request copies. You'll need to have your last pay stub as a guide when you make the call...
What's the deal on e-filing? Can I do this on my own, without going through a paid preparer such as H&R Block? I know Block and others in its industry worked to block the Service from offering tax return preparation software online, but have they been able to block self-efiling?
Jim Dupree: EVERYONE with access to the Internet can visit the IRS Web site: www.irs.gov and check out the FREE-FILE option. The IRS has partnered with the Free-File Alliance, a consortium of tax software companies to allow individual taxpayers to prepare and file their income taxes online for FREE...
Aren't points deductible also?
See a recent Housing Counsel column on this topic: "Points or No Points? Buyer or Seller? The Intricacies of Mortgage Shopping" (Jan. 15).
Jim Dupree: Points are deductible if they are interest...
Wait a Minute!;:
So, I can legally deduct my VA. Property/Real Estate taxes? Please say it is so!;
Jim Dupree: Yes you can, as long as you itemize...
My husband and I got a new car this year without trading in the older car. A nephew is now looking for a used car and we are considering selling the car to him. I paid 15K for the car 8 years ago and I think we'd sell it to our nephew for about 2-3K. What are the tax implications of this? Thanks!
Jim Dupree: The loss on the sale of your car is not deductible...
Chestnut Ridge, NY:
I have a Cafeteria 125 plan, do I claim this as income.
Jim Dupree: The unused portion of your Cafeteria 125 plan, may be taxable if it's been refunded to you.
What are the rules for setting-up and contributing to a Roth IRA? Is there a limit to how much income you are allowed? Thanks!
Jim Dupree: You can set it up with any financial institution - just request a Roth IRA. The maximum income limits depend on your filing status. For "Married Filing Jointly" the limit is $160,000.00, and you cannot contribute. If you are single, head of household or married filing seperately (and not living with your spouse at any time during the year) the limit is $110,000.00. Otherwise if you are married filing separately and living with your spouse at any time, the limit is only $10,000.00...
On March 2004, I was given primary custody of my son. How can I make sure that the non-custodial parent does not claim my son as a dependent for 2004? Also, can the non-custodial parent get into trouble with the IRS if she does claim him as a dependent without my approval? What can I do if I get flagged, because I'm claiming him as a dependent for 2004?
Jim Dupree: As the custodial parent, you really don't have to do anything besides file your normal return. If there is a discrepancy, you will be notified by the IRS. All you'll have to do is prove custody of the child and that you provide over 50% of the child's support...
After I prepared my taxes last year, my computer crashed and I lost all the data. I didn't honestly give it much thought at the time, but I realized it when I installed my tax program this year. Is there any way I can get copies of my federal and VA tax returns? If not, should I be terribly concerned? Thanks!;
Jim Dupree: You can request a transcript of last year's federal return by calling the IRS at 1-800-829-1040. This is a free service. If you need a photocopy of this return, call the same number, but there is a $39.00 fee for each tax year requested... Or stop by your local IRS office...
I am single head of household with a roommate who's unemployed, and I have been carrying the entire load. Can I claim him as a dependant. What other tax tips are out to keep me from paying IRS each year. It's sad that we get punished for not having kids or being married.
Jim Dupree: You can claim this person if he lived with you for the entire year, if he/she is a US citizen, if they are not filing a joint return with someone else, if their gross income was less than $3,100.00 for the year, and if you provided more than 50% of their total support... For more information, see IRS Publication 501, "Exemptions, Standard Deductions, and filing Information."
Here's a link to Publication 501. The IRS Web site has a searchable index of forms and IRS publications.
I get a pension from Canada. What % do I use to figure the currency exchange for 2004?
Jim Dupree: Contact your bank or financial institution for the latest exchange rates...
If this is correct, why is it that you can only write off a certain amount for child care (day care, etc.) but the person/facility that receives it must claim the full amount received as income? Thanks!;
Jim Dupree: It's the law... There are limits to the amount of this credit, and the person/facility receiving the fees must report it as income...
DC Metro Area:
Michelle, I love your column!; Thanks for having Jim on your discussion. I'm wondering about which types of medical expenses I can write off (prescriptions?)and if there is a minimum amount of donations that I have to have in order to have them be tax deductible and report them (around $400)? Thanks!;
Jim Dupree: You can deduct only the part of your medical and dental expenses that are more than 7.5% of your adjusted gross income. There are too many types of medical expenses to mention in the time we have today -- please check IRS Publication 502, "Medical and Dental Expenses" for more information...
Michelle Singletary: Thank you so much!
Here's a link to Publication 502.
The past few years I've submitted my tax return through the phone, last year online. This is the first year I've ever contributed to an IRA -- can I still use one of those methods? On the Telefile form I didn't see anyplace where you could denote that you contributed to an IRA account.
Jim Dupree: Traditional IRA Deductions are reported on IRS Form 1040 or 1040A. You cannot report them using the Telefile form.
My friend had to pay $4500 in veterinary bills last year (for an injured horse). Any chance she could deduct this?
Jim Dupree: If this horse is associated with a business, the veterinary fees might be deductible. Otherwise, nope...
As to the person who had a roommate, I don't think you can claim a dependant unless they are related somehow to you.
Jim Dupree: THis person may qualify as a MEMBER OF HOUSEHOLD. To meet this qualification, a person must either live with you for the entire year as a member of your household*, or be related to you.
* A person does not meet the member of household requirements if at any time during the tax year the relationship between you and that person violates local law...
What are the current rules regarding selling your home and buying another? Do you have to purchase another home within a certain period to avoid owing taxes on your profit from the first home?
Jim Dupree: If you sold your main home in 2004 you may be able to exclude from income any gain up to a limit of $250,000.00 ($500,000.00 on a joint return in most cases) and you do not have to purchase another home of equal or greater value. Check IRS Publication 523, "Selling YOur Home," for more info...
Here's a link to Publication 523.
Falls Church, VA:
Could you talk about the new sales tax deduction, please? It seems that it is beneficial to deduct the sales tax only if you paid less than that amount in State and Local taxes. Is this correct?
Jim Dupree: New for 2004, you can elect to deduct state and local general sales tax instead of state and local income tax. You cannot deduct both. Generally, to figure your state and local general sales tax, you can use either your actual expenses, or the optional state sales tax tables, contained in IRS Publication 600, "Optional State Sales Tax Tables."
Fort Washington, Md.:
When does child care costs stop being a tax write off? Our child turns 13 next year in 2006. Can we deduct any child care costs in 2006? If 2005 is the last year of tax write offs, this is the year for the most wonderful summer day camp experience.
If a child attends overnight camp are any of the costs deductible?
Jim Dupree: In the year the child turns 13. 2005 will be your last year.
Michelle Singletary: Well folks, that's it. I'm so sorry if we didn't get to your question during the chat. But Jim has agreed to answer some more. I'll print his answers in an upcoming column. Again, thanks for joining me. And in case you didn't know Jim answers tax questions every week in my electronic newsletter. Sign up for the newsletter and you may see your question answered. Thanks again and I'll be with you next on Feb. 16 where I'll be talking about love and money.